Insurer Tower has more than tripled last year's $6.6 million loss to a $21.5 million loss, prompting it to ring-fence outstanding Canterbury insurance claims and place them in a separate, new company RunOffCo.
Tower is withholding a full-year dividend to help pay for the new company, and is also looking at raising capital, with expectations it will have a proposal for shareholders next year.
The insurer has been fighting fires on several fronts, besides a plunging share price, increasing losses and capital needs, and it now has a $13 million exposure from Kaikoura's 7.8-magnitude earthquake.
It is also yet to settle more than $101 million from other companies, which could yet go to court.
Just days after the Kaikoura and Wellington earthquakes, Tower's share price target was downgraded 33%.
Its shares have plunged 44% from September 6, from $1.36 to 76c in mid-November, and were yesterday trading down slightly around 73c, following the full year announcement.
Since early September, Tower's market capitalisation has plunged by $104 million to $124 million yesterday.
In delivering its full year to September results, Tower chairman Michael Stiassny said the legacy of the Canterbury earthquakes had continued to ''overshadow fundamental improvement'' at Tower, prompting it to create a separate company, RunOffCo.
''In our view, the industry model is broken with claims inflation continuing unabated, construction is far slower than anticipated and little effective co-ordination between EQC and insurers.
''These are all symptoms of a system that can no longer do right by the people, communities or insurers it is supposed to serve,'' Mr Stiassny said in a statement.
Tower's $21.5 million full-year loss was driven by a $14.1 million impairment of technology assets and additional provisions for Canterbury of $25.3 million.
In early September, Tower advised the market there was a need to increase provisions for the Canterbury earthquakes, leading to a $16.2 million impact on its profit after tax.
Craigs Investment partners broker Peter McIntyre said Tower's main concern was maintaining its excess capital requirement above regulatory levels.
''They want to end the complexity of Canterbury and have enough capital to survive any significant [insurance claim] event in the future,'' he said.
He styled the separation after the South Canterbury Finance situation of separating out ''good bank, bad bank'' assets, following its multibillion-dollar collapse.
However, Mr McIntyre queried who would be interested in running and funding RunOffCo, noting the longer there were outstanding claims, the more costly construction costs would get.
''And now they have got Kaikoura [claims] to deal with,'' he said.
While Kaikoura was estimated by Tower to be limited to $13 million, thanks to its reinsurance programme, its capital remained above regulatory minimums, ''reassuringly'', Mr McIntyre said.
''[However] their capital position will be of concern to Tower,'' he said, given it had crept lower towards the
regulatory minimums.
Tower outlined its capital position yesterday, saying Tower Insurance Group had excess capital of $23.8 million above regulatory minimum levels at September 30, but after Kaikoura that stood at $16 million.
Tower Insurance Ltd had $14.3 million at September, but post-Kaikoura that was at $3.6 million.
However, Tower Ltd had $12.2 million cash which could be used as solvency capital and has access to an undrawn $50 million liquidity facility.
Forsyth Barr broker Damian Foster said the extended Canterbury claims - up by $7 million since September 6 - had pushed out Tower's loss ''well below'' his expectations.
''This justifies our view that the value of surplus capital remains very uncertain in the current operating environment,'' he said.
While the separation of Canterbury claims into RunOffCo would help keep management focused, it did not lower the continued risk of the need for further provisioning in the future, Mr Foster said.
Mr Stiassny said that during the past year Tower had received about 300 new claims, of which a ''significant number'' were new overcap claims from EQC, valued at $22 million.
''Separation [of Canterbury claims into RunOffCo] will enable the market to more transparently value Tower.''
He said the components of the separation, RunOffCo and New Tower, were ''undoubtedly'' worth more than the Tower model at present.
RunOffCo would own all the related liabilities and assets of Canterbury and over the medium term look to settle ''in a fair manner'' the remaining 564 outstanding claims, Mr Stiassny said.
Tower noted in September it had a commercial dispute with Peak Re, provider of the Adverse Development Cover entered into in April 2015.
Mr Stiassny said yesterday the recoveries due from Peak Re were $43.7 million and $57.6 million from EQC and Tower ''will not resile from litigation'', if required.
''Successful resolution of these disputes will support the capital returns for RunOffCo shareholders in the longer term,'' he said.
The New Tower company would seek to become a ''high performing general insurer'', challenging Australian insurer brands in New Zealand and provide consistent and stable dividends.
